WHAT DIFFERENTIATES AN ASSET FROM A LIABILITY
KNOW THE DIFFERENCE
- By definition, an asset is something that generates capital for you in the long run and short run. An asset can be anything unless it generates money, it can be shares of a company, a real estate investment, or an investment of any kind.
- By definition, a liability is something that you are liable to pay in the future. People don’t know this but there are many things in your life that are a liability and not an asset.
1. YOUR CAR
This is the most common type of mistake that people make, you have to remember the difference your car is not an asset rather it's a liability that people fail to acknowledge and end up losing money in the long run. Your car loses 30% of its value after you drive from the parking lot of the showroom and continuous to depreciate over a period of time. The answer to this liability relies on buying second-hand cars rather than new set pieces, as they have been depreciated earlier and nothing much is left to degrade or you can purchase a car on lease or finance it in many other ways.
But mind you not every car that you purchased is a liability some limited edition cars belong in the asset class along with some low production cars. They tend to go up in value over an extended period of time. The value depends upon a number of things including the company that is manufacturing the cars, the price range of the car, the exclusivity of the car, etc.
But these cars are considered to be a similar thing as gold because you have to have a place to store them, you have to maintain them, and also you have to protect them from any theft or damage in the process.
Whichever way you put it your car is not a great investment.
2. YOUR HOUSE
Believe it or not, your own personal house is not an investment rather it's a liability that you have to pay in the form of your mortgage for 20 to 30 years of your life. But if you buy a house other than your own house then it is a true investment that will generate money for you in the long run.
Until recently buying real estate was a bulletproof investment strategy in which the properties never lost their value instead gained quite well over a period of time unless the crash of the housing market in 2008 pulled them down to their knees and it was one of the first real estate crashes of its kind anywhere in the world. Even in 2021, the real estate market has not completely recovered as they are not up to the value of 2008.
To know more about the 2008 housing market crash visit: http://blogmillennial.com/2020/11/deeper-than-depression-economys-greatest-recessions/
This is a never-ending debate in which people are very confused if they should be renting a house or putting a mortgage on the house but it only depends upon the choices of the person and the work of the person as what he does for a living.
3. YOUR NEVER-ENDING DEBT
Debt is something that has destroyed many people over the years in the form of loans and credit cards. People often fail to realize the intensity of interest that they are paying for their debt which ultimately leads them to a dead end. This is one of the major differences between a rich-minded person and poor minded person as they often don’t know how to manage their debt.
As a matter of fact, there are many people who rely on debt for their income. There is a misconception that debt is bad but there are 2 types of debt, one is good and another is bad. Good debt allows you to earn more money, it works as an asset whereas bad debt removes money from your account.
The devil is in the details, first of all, you have to learn how to differentiate between the two and how to manage your debt and make money out of it.
I highly recommend you read the book “Rich Dad Poor Dad“ by Robert Kiyosaki because it talks in detail about the mindset of money and how to manage your debt and make it an asset through simple investments.
In the words of a capitalist, debt is a form of money which is the bank uses to control its currency. Debt is something from which the banks make money and keeps the whole economy running by maintaining a cycle.
4. YOUR TIME
Time is one of the biggest assets or liabilities a person can have, it purely depends upon how to person chooses to use his time. Always remember, you don’t get become what you want, rather you become what you are. Every person in the world has the same 24 hours, what they choose to do with that 24 hours matters the most.
That's why rich-minded people learn the importance of time management early in their life, this gives them the edge over poor-minded people.
If you don’t use your time to build yourself up in your 20s, then you are wasting your time.
If you don’t use your time to maintain yourself into your 30, then you are wasting your time.
If you don't choose to keep your family in one piece in your 40s, then you are wasting your time.
If you don't choose to educater other people in your 50s, then you are wasting your time.
If you don't choose to inspire other people in your 60s, then you are wasting your time.
People don't take it seriously but what do you do with your time is one of the most important aspects of your life, it defines who you are and what you will become in the near future or in the long run. Time is the only thing other than life and death that never stops for anybody under any circumstances.
Time is the entity that has given birth to the eighth wonder of the world which is compound your money. Read the article to know about the 8th wonder of the world: